Start Small, Think Big: How Lawyers Can Build Successful Legal Tech Ventures - Alex Baker - S9E26

0:00The next five years are really going to change not just the legal industry, but every industry with the advancements that we're seeing with tech. It's less about lawyers and law firms buying tech to make them marginally more operationally efficient, but actually building the future of what legal services could be. The time is absolutely now. If you've got an idea and you want to explore it, start moving forward. Take action. On today's Legally Speaking podcast, I'm delighted to be joined by Alex Baker. Alex is the founder of Legal Tech Collective and Legal Tech Foundry. With 20 years of experience in launching and building companies in the UK, Europe and Asia and North America, Alex is currently supporting startups in the legal and financial sectors.

0:45He is passionate about building the future of legal services. So a very big warm welcome to the show, Alex. Thanks, Rob. Great to be here. Oh, it's an absolute pleasure to have you on the Legally Speaking podcast. And before we dive into all the great things you're getting up to in and around the legal tech and legal community, we do have a customary icebreaker question here on the Legally Speaking podcast, which is on the scale of one to 10, with 10 being very real, what would you rate the hit TV series Suits in terms of its reality of the law if you've seen it on the scale of one to 10? Oh, I think it's got to be a three.

1:23confession I'm not a lawyer by background so I'm basing that purely on the experience of the people that I've worked with. I think that's a very valid and justified answer and with that we're going to move swiftly on to talk all about you so to begin with Alex would you mind telling our listeners a bit about your background and career journey? Yeah sure thanks Rod so I've been working for AI companies for about 15 years I started off my tech career in the ad tech industry advertising technology industry. Got very fortunate to join a company that ended up becoming one of the biggest IPOs to come out of France.

1:57And then I accidentally fell into LegalTech and was helping a friend who was building a prototype for a LegalTech product that's now used by the majority of Magic Circle firms, Amla 100, etc. That product was StructureFlow. And I just had an amazing journey with them and ended up meeting a whole load of other legal tech founders um through through the process and i launched the legal tech collective at the back end of 2023 with the view to helping other lawyers who are aspiring to become technology founders to to go on the same journey that that we've been on um so yeah it's been a it's been a really interesting uh last few years in in the space and excited to tell you a little bit more about what we've been working on more recently today.

2:51Yeah well let's get into it then let's get a little bit more underneath Legal Tech Collective in terms of you say you empower the next generation of Legal Tech founders to turn bold ideas into thriving businesses we're here for that so tell us more about your mission and you know what you get up to day-to-day as Legal Tech Collective. Cool it's a great question so I met 200 Legal Tech founders last year. And the majority of them have got great ideas. Most legal tech is founded by lawyers. So they've got inherent, excellent domain expertise, but very few have experience of starting and building technology businesses.

3:36So the premise of the collective is to help lawyers to become entrepreneurs or intrapreneurs within their existing firms to build legal services or tech enabled, tech enabled legal services or legal tech products. And we're helping them. Well, originally the premise of the collective was to help on the commercial side of the business. So working with founders on sales, marketing, business planning. but we've now extended that proposition to help founders also in the product development side of things and capital and resourcing where required yeah and i love that and i think you know i recruit for law firms as well i do a lot of that and i think a lot of things you mentioned there sales marketing of course that isn't necessarily always taught in law school so lawyers are very good at doing the practice of law but actually all those things in terms of running the business put in also technology and needing to be really cutting edge technology now in the AI revolution we're in um it's very much needed what you're you're doing so let's talk about Legal Tech Foundry just again to go a little bit deeper because you're part of Legal Tech Foundry please tell our listeners what that's all about.

4:47The Legal Tech Foundry actually is the extension of that proposition I just mentioned so of all of the founders that we've worked with um it what we've come to understand is it's pretty difficult to launch a legal tech business or to even build a tech-enabled legal service. And you need those three things to be able to do that. You need the commercial expertise and acumen and experience. You need the product development capabilities. And you're going to need the resources as well. And for founders that want to go and launch a legal tech venture, that's typically through the form of funding. But if you're a law firm, you may be able to acquire those resources, i.e.

5:32the money, internally to be able to build those propositions. So if you are trying to go and set up a legal tech venture, you need these three things to make this a reality. And unfortunately, lawyers are extremely busy people. So the idea of working a 60 or 80 hour week and also trying to find the right people across those three pillars to invest in your business, to be able to build the product and then to be able to take that product to market. That's a tool ask. Yeah, it is a hell of an ask. And I think there's a big thing as well in terms of working on the business as well as in the business, isn't there, which is so important.

6:19And I've been following your journey very closely, and we've got mutual friends in and around the world of legal tech and law firms. That's how we've been connected. But in your recently published article, will law firms of the future be run like tech companies? You shared traditional law firms are built on billable hours and incremental linear growth, whereas tech companies scale products to a broad market with exponential potential. I love that. And I'm glad I was able to get that out. So can a law firm be run like a tech company is my question to you. I don't see any reason why not. I mean, I think the biggest challenge for the larger firms is partner consensus.

6:57You know, there's a lot of talk about billable hour and when's that going to change. But I think, you know, that there hasn't really been a threat to the industry until AI has come along. And it started to, we started to see clients of firms use the technology that's publicly available to try and do some of the more simple work. So I think, you know, the main challenge for the larger firms is getting that partner consensus to be able to move in this direction of travel. And I think about what does it mean to be like AI native or a digital first firm. And for me, that's the tech delivering the work where the human lawyers provide the oversight and judgment and governance around the output of that technology.

7:53So it's a different take on lawyers adopting and using technology to deliver an output. It's using the tech to actually deliver the output where humans come in and provide that oversight. That leads very nicely on to, we had Piers Linney, former Dragon's Den investor and lawyer, come on to the show. And he talked very much about a value pyramid in the age of technology in the sense that, like you say, technology is coming in, particularly with the AI revolution. And you as a service provider need to move up ahead of the technology to ensure that H2H, that human to human contact and connection to be a value add of service.

8:29Because if not, you will have your lunch eaten. And I think that's a really good way of describing and what you're saying there. Complementary that the tech does this, but this is where your human input needs to be excellent to ensure that you're complementary with the technology as it continues to get more advanced and more advanced day by day, minute by minute. Okay, sticking with that same article then, you discussed five key factors, investment models, commercial models, capital allocation, go-to-market strategies, and long-term upside. So can you tell us about the importance of these particular factors?

8:58I know I reeled them up quickly there. I think for me, like just taking a step back for a second and just trying to encapsulate all of those things that would need to be augmented. If you were a law firm that's providing a service, you already have clients, you have revenue. All of these things need to change in order for you to provide an AI native digital first proposition. So the commercial model is different. It is investing up front to reap the rewards of long-term revenue growth versus just simply billing for the work that you're doing and being paid for that with some degree of immediacy.

9:45um so there there is a huge amount that would need to change if a firm is looking to move in this direction of travel and again if you're if you're in the the space of big law you're you're then thinking about trying to do that change and effectively create startups across every single business unit or practice area that you have within your firm. So that makes it exponentially harder because you're now trying to create five, 10, maybe 15 startups all at the same time. Yeah. And that is a no mean feat by any means, but I think once done well, done very well. I think one of the other things I would add to that from what I see, a lot of people focus on ROI, right, the return on investment.

10:39Whereas I think at this stage, you really need to understand the COI, which is the cost of inaction. So there is a huge cost to you not adapting and adopting that the way clients and your customers are going to want to deliver and receive those legal services or legal tech services. And I think that resistance, the time is now to be doing exactly what you're doing and offering in terms of helping people get these businesses off the ground, because the market is shifting and expectations are shifting. And I think there is a huge COI. so like you say with regards to that front loading i still think there's a huge cost of an action if you don't put that initial cost and investment in because you're going to be so far behind the curve in terms of actually meeting your clients and customers where they're at so i love that insight okay i want to talk about some of the biggest barriers for law firms um when actually trying to make the shift because change is hard change is hard across any business but how do you advise organizations to overcome these sort of challenges and barriers particularly you face with the law firms?

11:34Well, I think the starting point is not trying to think about building 10 startups all at the same time. So our advice is to always start small and work your way up. One of the things that's incredibly attractive to the firms that we're speaking to is creating productized services that enable them to be able to attach themselves to markets that they've previously not been able to service because it's just not been economically viable to be able to provide that service to a group of clients that can't afford to pay for the service to be delivered in the traditional sense. So I think there's an opportunity there to create revenue where previously you don't have any revenue.

12:26I think there's a lot of talk in the market about, you know, how do we make ourselves more efficient? How do we bring the cost down because clients are pressuring us to do so? There's definitely part to that. And that speaks to acutely like the cost of inaction that you're just talking about there, Rob, because if you don't take action, and your competitors are, frankly, your lunch is going to be eaten because they're going to be able to provide a more effective and efficient service. But I think starting small and from a cultural standpoint, starting in areas where you can provide more value within the segments in which you operate, that enables you to be able to capture more value and therefore drive revenue rather than, I think there's a lot of thinking that goes into, well, if we're going to productize this service and charge less for it, how's that going to impact the broader revenue of the organization?

13:28So start small. And once you've identified that area, then it's about going out and validating whether or not that service that you're thinking about providing that idea that you might have actually is commercially viable yeah and again really great wisdom being shared there and i think one of the things particularly i come across with lawyers as well as perfectionism right in terms of well you know what if it's not right this done the reality is done is better than perfect perfect never gets done and when you're an entrepreneur and you're running a business not necessarily being the legal but you need to understand that start scrappy like you say just take a couple of steps forward.

14:02And I had a great insight shared by the CFO of Clio. Kurt came on the show a few months back. And he talks a lot about particularly in the world of running tech companies and particularly in legal space. It's like driving in the fog, right? You still keep driving forwards, but you probably go a little bit slowly, but you're still going forward. You're incrementally going forwards and forwards and forwards and forwards. And actually, when you take that step back, it's amazing how much progress you've actually made through ensuring that you say you keep taking the next step, the next step. And I think that's so true to what you're saying there in terms of just start don't get stuck in overwhelm have some imperfect action over perfect inaction and staying where you are and actually move forwards absolutely love that okay we've talked a lot about oh go on i was just gonna say there are but there is there is a another analogy that that i'm i'm still confused by actually which is um we talk to a lot of lawyers that have ideas right like and some really interesting ideas but there seems to be when whenever um whenever a lawyer is doing some thinking outside of the environment in which they find themselves most accustomed to, the idea of doing due diligence on their idea seems to go completely out of the window.

15:12But we spend a lot of time actually working with aspiring founders to ensure that, you know, if you have an idea, should you go and pursue it before you make quite a big decision in some cases to go and step out of a career that you might have spent 10 years building to go and launch a legal tech venture so that diligence that stress testing your idea to ensure that it is a good one um incredibly important and i think we don't see enough of that happening in the space which leads to you know portals being built and frankly for those that that pursue those under researched propositions um they're wasting a huge amount of time effort energy and in many instances capital building products that really should never have been built yeah and again that's really important i remember when we've we've had jack newton obviously see how cleo support the show come on many times and he talked very openly from when he sort of founded cleo in the very early days um and said how you know legal tech really tools have been pretty poor over the years and legal industry hasn't been serviced well with high quality you know meeting customers and clients where they are being client-centric useful helpful and it's kind of been a bit of this and then they all fail and I guess the counter argument to that in terms of entrepreneurship as you and I know Alex is you've got to be prepared to fail as well you're not going to get your first light bulb when it's going to be a success and you're going to be off to the races well if you are you're one of the very few billions of people who get that moment but like you say doing enough actions or due diligence to maybe where you might need to pivot a little bit or know where you're going so there's a cause of strategy to work on is so so important.

16:52Okay we've talked a lot about law firms adopting emerging technology but I do think we need to kind of get under the skin of this so we can give some practical tactical examples and because it's very well known that emerging tech can automate lots of the routine legal work but what are some examples of emerging technologies you've seen and how they're impacting legal work to get done well that might encourage people that might be sitting on the fence say oh actually that could relieve a reduce a lot of pain and friction within our firm so i'm not going to talk about any specific technologies rob i think for me um the best way to identify an opportunity within an existing organization is to think about um the areas of work where you have a relatively high degree of repeatability and uh to a certain extent lower levels of complexity and if you can look at the services that your firm provides and to our point earlier right like trying to find the lowest hanging fruit trying to find those opportunities where you can dip your toe in the water to explore what this productized service jargon that these AI techies are going on about is what it really means and what it looks like to implement that within your firm.

18:13I think that's where the opportunity is right now for most firms and most lawyers to, if they're thinking about starting on this journey. A lot of what we do is custom development work using the big players that everybody knows about, open AI, Anthropik, et cetera, et cetera. And where I think personally, it's a really exciting space to be playing in is trying to look at where a lot of that work that's being done at the moment is really kind of low value, low margin. The sort of work that most lawyers don't want to be doing, if we can create a tech enabled service that replicates that where the human comes in the human lawyer comes in and provides that oversight to ensure that um well a the insurance is being met but also there is of course accuracy in what that technology is outputting i think that creates an amazing opportunity for um most lawyers to realize their dreams of we can earn money whilst with sleeping.

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20:04If you're ready to leave frustration behind, visit clio.com forward slash UK to learn more and see why Clio continues to be the go-to choice for solicitors across the UK. Now back to the show. Removing a lot of the headaches and the hard work and the friction and the grunt work that has been done for years and years and years and the reality is if nothing changes nothing changes right so there's a real opportunity here for law firms to increase you know everything that we've been talking about so let's talk about we've talked a lot about the AI native law firm but to someone who's just perhaps not been that interested or just said these are all buzzwords I don't I'm not sure what would you describe how would you describe a best-in-class AI native law firm in your own words to get people to kind of understand the real benefits of moving to this this direction yeah ai native law firm sounds quite visionary doesn't it yeah it does say it might might happen at some point in the distant future but i think ai native is where you have technology delivering the work and for the time being humans are involved in providing that oversight so we've already started to see some amazing examples of this appear right like garfield uh the first ai native law firm uh but i think that model is really really exciting and can be replicated in many many other areas of of law i i agree and we've actually had philip young from garfield ai come on he's great um fabulous fabulous legal brain i encourage folks to go back and listen to his episode as well and just get a bit of a story and the name behind Garford as well is quite an amusing story and I think you highlight a great example there as well okay let's talk about meeting client demands then in 2025 because they obviously want more cost predictable they want more efficient services so how can law firms actually deliver and meet these particular client demands and what changes are absolutely pertinent to law firms to make in your opinion they've got to be able to deliver value and value is perceived right so if the client's perception of value is not there then it's difficult to imagine the world in which a firm that just continues to do what it's always done will be will remain competitive so what do clients value they value the price point which they're paying for the advice that they're getting they value the quality of the advice they're getting they value the time and speed at which that is being delivered but ultimately i think it's a case of valuing the outcome that they arrive at and i think anyone that's not thinking about how can they improve across those different elements, the service that they're providing is not going to be in a great place in a few years' time if the rest of the market is moving in that direction.

23:07But I think there's a huge opportunity to reimagine how legal services are delivered and technology is is is there the technology is there it's ready to do it um but the challenge is of course finding time in the day to really truly understand what is possible and what could be built and how those services could be improved because again we're all busy lawyers busy delivering the services that our clients demand of us today i think that's the thing, isn't it? Be busy today, but not be busy tomorrow. You need to, if it's important enough, you need to try and find the time or find out a way to do that or collaborate or find people that can do things for you because, yeah, I absolutely agree.

23:54And you gave a great example earlier. There's a blue ocean opportunity here, isn't there, in terms of services this could unlock or new markets or sectors or verticals you can move into. So, you know, the time is absolutely now. So I guess leading to advice for lawyers or maybe managing partners who can see the future, and we talked about sort of just starting but maybe anything you would like to add to that in terms of they know the future's coming but they just don't know where to start what would you say to those people to help them actually take a bit of action uh well firstly get in touch yeah absolutely um but seriously uh i think the time is now you have to take action you've got to start moving forwards.

24:40And, you know, I think the next five years are really going to change, not just the legal industry, but every industry with the advancements that we're seeing with tech. I ran a workshop recently, and I was just trying to emphasize just how quickly technology is now moving. It took Netflix three years to get to the point of having a million users. it took facebook a year do you know how long it took chat gpt yeah wasn't it like a matter of days or something like that ridiculous 24 hours and it's now used regularly by 10 of the world's population like we've never seen that sort of growth before and it's also enabling um bottoms up innovation right rather than having technology being built by government or military organizations and then moving to corporations starting to develop it this technology is now available on this in everyone's pocket and it can do incredible things so the time is absolutely now If you've got an idea and you want to explore it, like I say, get in touch, but start moving forward.

25:57Take action. And I love that you give the example of the phone and in your pocket. And just reminds me of Ben Williams, who we've had on the show. Folks, go and check out. He's also been on Diary of a CEO who's creating a coach in your pocket, his own business called Loopin, which is linked to AI and could be great because he believes he should produce that access to everyone should be able to afford and have access to coaching and helping themselves improve and develop. So go and check out that particular episode. This question I've been dying to ask you, I think it's brilliant. I saw the post myself on LinkedIn, but you talked about how a£1 million investment could unlock, and we kind of touched on this, a£12.5 million in terms of added business value.

26:32So for folks that don't know what the heck we're talking about here, could you walk us through the maths and give us a bit of context? Okay, sure. Well, firstly, I'm glad that you're reading some of my content, Rob. Absolutely, we're interested. But yeah, so this is a firm we were talking to recently. uh they currently do five million in revenue and at a 50 margin so two and a half million in profit now on a really good day if we imagine uh an instance where they managed to sell that professional services business for three times multiple of their profit yeah that would mean that they've got a seven and a half million pound business that's the valuation of their business if they were to go on and sell it.

27:17Now, what we started looking at is what would this business be worth if it was now an AI native or tech enabled service? And so you take the same revenue number at 5 million, but now you've got an 80 % margin because the technology is doing most of the work. And at an 80 % margin, the question really is, does that unlock the sort of multiples that technology companies command when they go and sell their business or they do a fundraise, for example. So if you can command a 10x multiple on revenue now because you've got an 80 % margin for your tech-enabled legal service, your AI native law firm, well, a 10x is 50 million valuation of your business.

28:11And we have estimated that that transition is going to cost roughly a million pounds to be able to facilitate that. Now, a 10x multiple might be strong. Let's call it a 5x. Even at a 5x on 5 million, you're talking about 25 million valuation from previously where you were at, which is seven and a half. So that makes the 1 million pound and the ROI that you were talking to earlier, quite attractive. That comes to your point in terms of earlier, of having a bit of a strategy, doing due diligence, researching, understanding, because you just see that just makes so much sense. There's not enough reasons to ignore that, is there, in terms of why you wouldn't, particularly if you're a for-profit organization, you want to obviously have an exit and get out, which absolutely people who are working hard and solving problems with people and adding value deserve that.

28:58You touched on sort of the next five years. This is a tough question because the future of law firms, the future of anything, I think is unknown. I don't think anyone has a crystal ball, but I'm curious to get your thoughts. What do you think a law firm will look like in 2030 and beyond? And what key features do you think will radically be different from today's firms? Wow. Okay. That is a big question. And one, I don't think anyone can say with any degree of certainty what that is going to look like. I think if anybody tells you otherwise, yeah, reason to critique there. i i firmly believe in this direction of travel uh the market is demanding it the clients are demanding it the technology is there to be able to facilitate it and so much value can be created in this market that currently isn't tapped up um the it's just ripe for um changing how legal services are provided and changing the economics around who has access to them.

30:11So I think we're going to see a lot of exciting developments in the next few years where it's less about lawyers and law firms buying tech to make them marginally more operationally efficient, but actually building the future of what legal services could be and realizing the potential of this technology to help them be better lawyers and provide a better service for their clients and i think that's the positive great outcome we'd all hope for because everyone wins in in that regard um i want to talk a little bit about legal tech talk because we were there early this year we were doing a whole series um did over to other 25 interviews thought it was fantastic and bradley collins and team did a great job and you had a session there and you discussed the critical early stages in terms of making or breaking legal ventures so could you give us a quick recap of your session and what were some of the highlights yeah uh well we sort of touched on this a little bit earlier rob um but i completely agreed like the the legal tech talks was phenomenal this year it was it was excellent um the session was all about how can you take how can you go from having an idea to market with your idea in 90 days.

31:26So a lot of the founders that we speak to, it's taken them years to go from having that idea to building the technology, raising funding, and then starting to get their early adopter clients. So we're trying to completely rip up the rulebook in that regard and look at what are the things that need to be done so that a lawyer, if they're looking to go and launch a venture, can actually make an informed decision about whether or not they should in as short a time frame as 90 days. What we look at is how do we get to a point of validating the commercial viability of a venture? So the way that we start to look at that is what is the problem that we're trying to address here or what is the opportunity as we see it where tech can come in and create immense value how much value is it going to create we start looking at what is the potential for the market uh what are the competitors that exist in the space and even if there isn't a direct competitor what are the incumbents what does the status quo look like?

32:39How are clients doing this today? And we want to do all of this so that we can start to build some collateral and assets around what this business or product will actually be, and then take that to the market so that we can have a conversation about proving or disproving our hypothesis around this idea, right? So I've got this great idea. I want to go and build X. Okay, well, let's take X and have a conversation with a whole load of prospective clients to validate whether or not X is actually right or whether or not it should be Y or Z. And most founders do this to a certain extent. But as we were talking about right at the start, the extent of that due diligence around the idea is often lacking.

33:30And what that means is that you can end up six months down the road and building a whole suite of functionality, features, et cetera, that actually don't have any value at all. And there's huge technical debt that's attached to that, but there's also immense amount of go-to-market debt in many respects, because if you're going and having conversations with the wrong people and you're trying to solve the wrong problem, your ability to be able to convert that market into clients is going to be hampered. So we aim to do a lot of that due diligence right at the outset so that we have complete confidence in the technology propositions and tech enabled services that we then go on to build.

34:23Yeah. And again, it's worth investing the time and being thorough to get it right, or what you hope will definitely be right with maybe some tweaking along the way. And I think it's great that you highlight that and hopefully people listening in do actually take your advice and either get in touch with you or go through those steps and don't cut corners. Okay, finally, what advice would you give to aspiring solicitors who are interested in legal tech and perhaps want to learn more? Well, there's a lot of content out there and the market. Thankfully, some people are reading mine. Cheers, Rob. Absolutely.

34:55but uh again please feel free to get in touch and we can have a conversation about what your idea might look like um there's huge resources out there to go and read up what's what's already available but i would also say if you're not already using it start using some of the generic ai applications that are available to everyone it'll start to give you a flavor of what's possible with this technology and how you can then apply that to your idea or the technology that you're then looking to go and adopt and purchase. So, you know, even simple horizon scanning is now possible using generic tools like ChatGPT.

35:42I want to find a document drafting solution. Find me the top 10 companies that do this in Europe. It's as easy as that. And you'll at least at that point start to get a flavor of what's possible with this technology if you haven't already got your hands on it and certainly save you a bucket load of time as well um alex this has been a really fascinating insightful conversation i've really enjoyed it and you know we mentioned a couple of times so if our listeners do want to follow you or get in touch or learn more about the legal tech collective where can they go feel free to share any websites any social media handles we'll also share them with this episode for you too awesome thank you uh rob so yeah if If you want to connect with me, Alex Baker, you'll find me on LinkedIn.

36:24Our Legal Tech Collective website is LegalTechCollective.com. Pretty simple. And then the Legal Tech Foundry, for those that are interesting in building legal tech, building tech-enabled services, that's LTCFoundry.com. Perfect. Simple. Well, thank you so, so much once again, Alex. It's been an absolute pleasure having you on the show. I believe your first podcast you've ever done as well. So from all of us on the Legally Speaking Podcast sponsored by Clio, wishing you lots of continued success and seeing you on more shows in the future. But for now, from all of us, over and out. Thank you for listening to this week's episode.